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How will its venture into the supermarket sphere affect Amazon's share price?

Amazon’s [AMZN] share price has reached unprecedented heights this year.

At the start of 2020, Amazon’s share price hit a new peak, rising to $2,185.10 during intraday trading on 19 February before closing at $2,170.22.

However, as the coronavirus pandemic started to affect the markets, Amazon’s share price closed lower, at $1,676.61 on 12 March – its worst day of trading so far this year.

That said, it didn’t take long for Amazon’s share price to recover its lost value. The stock closed at $2,168.87 on 13 April and has since gone on to surge to record highs – its growth far exceeding that of major indices such as the S&P 500, the Dow and the Nasdaq.

 

 

Customers all over the world have come to rely on the company’s delivery and streaming services in the wake of the coronavirus pandemic. On 18 August — the stock’s best ever day of trading so far — Amazon’s share price reached an intraday high of $3,320 before closing at $3,312.49.

On the other hand, the share price performance of Amazon’s latest corporate partner Morrisons [MRW] has been a little flatter. The stock was down 1.78% year-to-date to close at 191.10p on 2 September. In comparison, Amazon’s share price is up 91% in the same period.

There’s no doubt that Amazon’s share price has gained as a result of international lockdowns, but could its expansion into the grocery market with the help of Morrisons see the stock climb even higher?

 

UK supermarket shakeup

On 19 August, Morrisons announced that customers could now use Amazon to order their groceries directly from the store, with Amazon Prime members getting free delivery on orders over £40. The partnership could well see Amazon’s share price rising to new heights.

As part of the announcement, Doug Gurr, Amazon’s UK country manager, said: “The launch of Morrisons on Amazon means increased visibility for Morrisons’ incredible service and selection, as well as an even greater choice for our customers.

“We’re always looking at ways to make Prime even better and this expansion of our relationship with Morrisons means that millions of Prime members can soon order their weekly groceries from their local Morrisons shop, with same-day delivery, at no extra cost.”

“We’re always looking at ways to make Prime even better and this expansion of our relationship with Morrisons means that millions of Prime members can soon order their weekly groceries from their local Morrisons shop, with same-day delivery, at no extra cost” - Doug Gurr, Amazon’s UK country manager

 

There’s no arguing that the pandemic has rapidly changed the UK’s grocery landscape, particularly when looking at the rise in demand for online shopping.

Estimates from market intelligence agency Mintel suggest the UK’s online grocery market will be worth £16.8bn in 2020, an increase of 33% from £12.7bn last year. It’s also worth noting that the surge comes after four consecutive years of slowing growth, with online sales growing just 2.9% from 2018 to 2019.

While Morrisons is just a fraction of Amazon’s market cap, the partnership could help the grocer grab more market share from its Walmart [WMT]-owned rival Asda which, according to Statista, has a 14.1% stake in the UK grocery market compared to Morrisons’ 10%.

$16.8billion

Valuation of UK's online grocery market in 2020 - a 33% YoY increase

 

What do the analysts think?  

According to The Fly, John Blackledge, an analyst at Cowen, raised the firm's target on Amazon’s share price last month from $2,750 to $3,700 while maintaining an Outperform rating. The analyst's change reflects the rolling forward of free cash flow. He expects a strong quarter with revenue slightly above guidance.

Amazon has a consensus Hold rating from Zacks Equity Research, which goes against the consensus among 47 analysts polled by CNN Money to Buy the stock. This rating is held by a whopping majority of 40 analysts, with only four suggesting to Hold the stock, two giving it an Outperform rating and one suggesting to Sell.

The median 12-month price target among 44 analysts polled by CNN Money is $3,700, with a high estimate of $4,200 and a low of $2,646. The median target represents a 4.8% increase from Amazon’s share price as of 2 September’s close.

As for Morrisons’ share price, Simply Wall St reports that it could be undervalued, stating that: “Relative to the current share price of £2 [set on 20 August], the company appears quite undervalued at a 39% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope – move a few degrees and end up in a different galaxy.”

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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